COVID 19 – A GOOD WAKE UP CALL FOR SINGAPORE LOGISTICS
Raymon Krishnan, FALA, FCILT
Like the rest of the world, Singapore is grappling with COVID-19 with the ‘circuit-breaker’ extended to 1st June – whilst some countries including China and Vietnam are already easing restrictions and allowing businesses and life in general to resume some form of normalcy.
We have been reading for weeks about a marked reduction in air and ocean cargo from and to China and the rest of the world affecting supply chains globally. To compound this, with the second wave of COVID-19 clustered in foreign worker dormitories here in Singapore, labour flows have also been impacted. The IMF has sounded the warning bells over the immediate and long term damage to the global economy and Singapore will not be spared.
EVERY DARK CLOUD HAS A SILVER LINING
COVID-19 has accelerated the Anywhere But China (ABC) movement. Japan, two weeks ago, announced that more than US$2 billion of the country’s record economic stimulus package will be used to help companies move production away from China. For more than a decade, both multinational and Chinese firms have looked to escape rising labour costs in China by moving operations to new locations in Southeast Asia and beyond. The US-China Trade war that has been subsumed by COVID-19 has led to a further decoupling from China-centric supply chains and have resulted in the construction of new manufacturing and assembly facilities in places like Vietnam, Malaysia, Thailand and as far afield as Mexico.
How many firms, country and even geographic supply chains will look like after businesses awaken from this period of supply chain hibernation will be very different.
The silver lining is not the ABC movement but rather that firms are now forced to explore alternatives that may well stay in place for a prolonged period and is a good reminder and wake-up call that supply chains must always be evolving – and for those able to leverage this constant change in the business landscape, opportunities exist!
THE BELT AND ROAD INITIATIVE (BRI)
Much was written about the BRI in the last few years but we have heard little of this lately. The BRI has not disappeared, it is forging ahead just below most people’s radar. As the BRI develops, Singapore’s relevance as a major transhipment port will be eroded. We can continue building the huge container terminal in Tuas, in the western part of Singapore but whether there will be sufficient transhipment cargo to make this a necessary and viable initiative is anyone’s guess. It does not appear to be the case.
As the BRI develops, cargo will simply bypass Singapore and we will slowly see volumes and capacity heading elsewhere – much as we have seen happening in Hong Kong these past years.
ALL IS NOT LOST
Singapore is a strategic logistics hub not simply because of the amount of cargo we handle. This is certainly a major factor – however there are a plethora of other factors that need to be in place before one can even think of being considered such.
I was working on a project in Oman a couple of years ago and experts there who had the grandiose plan but not the wherewithal to execute it, failed to realise this in the dream of usurping Dubai, Abu Dhabi and even Qatar as logistics and transhipment hubs for the Middle East much more than just lip-service – let alone the requisite cargo volumes were needed.
SINGAPORE’S STRATEGIC VALUE IN GLOBAL SUPPLY CHAINS
While simultaneously adjusting to the realities of de-coupling and restructuring of global value chains, Singapore as a nation now needs to strategically, tactically and operationally turn to more diversified and well-balanced domestic and international strategies to not just maintain but leverage its strengths.
Singapore’s importance as a regional logistics hub puts it at the centre of a dramatically changing business landscape, and we have the opportunity to help ensure that the world’s leading businesses will continue to turn to us to meet new and ever-evolving supply chain and economic needs. Some of the benefits it must continue to foster include:
– Good and stable government. Some may gripe about the local political landscape however it is this same government that has made us a global standard for transparency, stability and safety in the region. The value of the latter cannot be discounted as many companies value being able to place personnel and their families in Singapore as compared to other countries in the region.
– Clear and efficient executed rules and regulations. Singapore is recognised as an excellent place to headquarter and base your growth in the Asia Pacific region for this very reason.
– Strong banking sector – With trade and supply chains, finance must flow and Singapore is a global financial centre augmented by the two preceding points.
– Good legal infrastructure and framework that supports international business.
– Talent – although when coupled with the increased costs of our labour, this gap is closing, our excellent education system churns out a labour force second to none.
– Technology and Innovation – Our Networked Trade Platform ( NTP), is a model of efficiency for a trade and logistics IT ecosystem. NTP connects businesses, community systems, platforms and government systems. Additionally, COVID-19 has highlighted the global economy’s vulnerabilities to diseases and pandemics. Automated factories and intelligent supply chains reduce risks and enable more diversified and better coordinated supply chains and this is another area in which Singapore can excel from an innovation perspective.
Although Singapore has a lot going for it as a logistics hub, there are very few examples of how it has successfully transplanted from what many describe as a ‘rigged’ local environment, to situations abroad. Until it is able to do so in this and other areas, it will always be subject to the whims, ebbs and tides of good fortune. As a logistics hub, for example, there are few if any real independent and privately owned supply chain companies who have been successful in expanding globally.
DECOUPLING AND DIVERSIFICATION
As COVID-19 forces companies to double down on decoupling and value-chain relocation, Singapore can become imbedded in these new capacity-building solutions and play an even larger part in the global supply chain stage.
There is high demand in the market for next-generation, technology-enabled value chains. The Singapore Government, which has allocated US$19 billion under the Research, Innovation and Enterprise 2020 Plan (RIE), with the fund topped up at Budget 2020, is well placed for participation in these advanced manufacturing and engineering areas. This will allow Singapore to become a prime destination for leading multinationals that are seeking an edge in this area.
In the near term, COVID-19 will bring challenging economic times to Singapore. These local challenges will most certainly be met and overcome by a proactive government but COVID-19’s lasting effects will be more pervasive and long-term, as Singapore adjusts to a new and promising role in a shifting economic landscape.